CALGARY — As oil prices continue to teeter, slumping Wednesday to their lowest level since October, provincial governments that have traditionally padded their budgets with resource royalties are facing the unpleasant prospect of ever-more glaring deficits in the coming months.

Saskatchewan is already creating contingency plans in case crude prices fall, as Newfoundland and Labrador premier Kathy Dunderdale warned voters that the province could be facing hard times if the price per barrel continues to dip. Alberta insists it’s too early in the fiscal year to panic, however its budget may be in for a rethink by the end of the first quarter.

Global Brent crude prices closed at US$92.57 per barrel on Wednesday, well below Newfoundland’s forecast of about US$124 per barrel. Both Saskatchewan and Alberta base their forecasts on the cheaper West Texas Intermediate benchmark, which closed at US$81.45 per barrel — again at a steep discount to the values predicted by budgetary bean counters.

Natural gas, the exchange rate, all those things play into the bottom line, not just simply subtracting what oil is at today

Jurisdictions that rely on volatile commodity royalties often overshoot estimates, making it easier to justify more ambitious spending.

Projections that look fine on paper during optimistic budget planning meetings, however, can end up in disastrous budgets if prices collapse. In 2008, the Alberta government’s $8.5-billion surplus projection shriveled to a nearly $1-billion deficit when recession hit and energy prices collapsed.

Of Alberta’s approximately $40-billion budget this year, about $11-billion comes from royalty income largely derived from non-renewable resources, said Robyn Cochrane, spokesperson for the provincial finance ministry. Forecasts are based on longer-term averages, not daily ups and downs she said, and the budget benefits from a number of other trade-offs that may mitigate longer-term declines in oil prices.

“Natural gas, the exchange rate, all those things play into the bottom line, not just simply subtracting what oil is at today,” she said. “It’s too early, really. If you look at it, we’re just two months into the fiscal year. It’s really what matters in the long term over the entire year. But of course we’re paying attention.”

With its oil forecast at US$99.25 per barrel, the province is expecting an $886-million deficit for the 2012-2013 fiscal year. Ms. Cochrane said Alberta is looking for a surplus of just under a billion dollars the following year, with oil prices expected to rise again.

Earlier this month, premier Alison Redford said her government wouldn’t play the part of Chicken Little.

“We are not a caucus that is going to run around saying, ‘The sky is falling. The sky is falling,’” she told reporters. “What I am not going to do is spend every day responding to a question about what we are going to do because the price of oil is lower. This is about big picture.”

Katherine Spector, the head of commodity strategies for CIBC world markets said a number of factors are pushing oil prices lower. Europe’s volatile financial situation and uncertainty about China’s growth rate have stamped question marks all over commodity prices. In addition, Saudi Arabia is releasing more oil supply onto world markets in response to declining production in Iran.

But Alberta’s coffers may still suffer if the difference between WTI benchmarks and the actual price Alberta producers can sell their crude for continues to grow. A lack of pipeline capacity to the province’s key market in the U.S. has created an enormous backlog of Alberta crude. That glut of supply has pushed the price of Alberta’s oil to a more than US$20 discount below the quoted price for West Texas Intermediate, to around US$60 a barrel.

Eighty dollars a barrel is not a bad oil price historically, it’s actually a pretty good oil price

And while the Alberta government calculates the percentage of its royalties from the WTI benchmarks, government royalty revenues are derived from the price Alberta’s oil actually sells at. If global oil prices drop, and the spread between the WTI value and the actual selling price continues to widen, provincial coffers could face a double whammy.

Alberta’s oil forecasts have faced scrutiny from the opposition Wildrose party, who referred to premier Alison Redford’s most recently passed fiscal plans as the “Alice in Wonderland Budget”.

”Eighty dollars a barrel is not a bad oil price historically, it’s actually a pretty good oil price,” said opposition finance critic Rob Anderson. “You’ve got to budget conservatively and try to under-assess what your revenues might be so if something bad does happen, you’re not up a creek without a paddle.”

As it is, Newfoundland is already planning for a $258.4 million deficit on its $7.5 billion budget passed in May and had hoped to reach a surplus in another two years. That was before Brent oil fell nearly 20% since the budget was tabled.

“At this time, the premier has indicated that there are no real changes being contemplated to the budget at this time based on that. Just because there’s a fluctuation in the price, that’s something you watch rather than make an adjustment as it moves,” said Glenda Power, a spokesperson for the premier’s office.

With only 14% of its overall revenues comprised of oil royalties, Saskatchewan is more insulated from price shocks than some other provinces. However, Brian Miller, a spokesperson for the province’s ministry of finance said the government has started to draw up contingency plans.

“They haven’t been fully developed right now. The direction we’ve received is to look for across-the-board efficiencies,” he said. “There wouldn’t be any one ministry that would have to make up a shortfall.”

For this fiscal year, Saskatchewan has forecast a surplus on its $11 billion budget based on average WTI oil prices of $100.50 per barrel, though “strong” potash prices and higher than expected corporate taxes meant the province remained “pretty much on track” at the end of May, Mr. Miller said.

There’s little doubt tanking oil prices will have an overall negative impact on government ledgers, said Mike Moffat, an assistant professor at the Richard Ivey School of Business in Toronto.

“It’s easy to spend the money when you have it. Once prices are high, you should put that money in a fund and save it for times when prices are low, but that’s a hard sell politically. We’re going to take this revenue, but we’re not going to spend it on schools and hospitals,” he said. “But the good times do run out at some point.”